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House
Bill 1161 and Construction Defect Litigation
On
April 25, 2003, Governor Owens signed into law HB1161, a bill
that has several effects on construction defect litigation.
This bill has three primary components by which it influences
the future of construction defect litigation in Colorado:
Right to Remedy/Notice Requirement, Limitation on Damages,
and Colorado Consumer Protection Act (CCPA). This statute
applies to "construction professionals," a definition that
includes anybody connected with construction and, in commercial
cases, prior property owners.
Right to Remedy/Notice Requirement
HB
1161 establishes a right to remedy and notice provision in
the event of alleged problems with construction. The claimant
is now required to notify the builder of the defects at issue
at least 75 days prior to filing an action in a residential
claim, and 90 days prior to a commercial claim. This notice
must provide reasonable detail about the nature of the claim
and include a list of construction defects. This allows the
builder the opportunity to address any alleged construction
defects before the parties head to the courtroom. The builder
is obliged to respond to the notice in order to take advantage
of certain benefits provided by the bill, such as limits on
damages, and the claimant is required to allow an inspection
of the premises under question within 30 days. After this
inspection, the builder may make an offer for remedy with
specific details.
This
bill also establishes consequences for both parties: for a
builder who fails to respond to a notice of construction defect
and for a claimant who does not accept an offer of settlement
under the bill. Any actions that are filed that have not
complied with this bill will be stayed until the procedures
outlined by HB1161 are followed.
Limitation on Damages
With
respect to the issue of damages included in HB 1161, property
based claims are now limited to "actual damages." The definition
of actual damages is, of course, and important one, and the
bill specifies that this means: "the fair market value of
the real property without the alleged construction defect,
the replacement cost of the real property, or the reasonable
cost to repair the alleged construction defect, whichever
is less"(HB 1161 §2 13-20-802.5(2)) and allows the addition
of any relocation costs, interest and/or actual economic damages
occasioned by loss of use of the premises.
No
longer are "probable damages" allowed, and neither are many
other types of damages traditionally recovered under past
Colorado law. Thus, allegations of annoyance, inconvenience,
aggravation or other non-economic loss are no longer relevant,
and neither can plaintiffs recover both the cost to repair
AND the diminution in value nor the cost of repair when it
exceeds the value of the property. In addition, the bill
may eliminate recovery of punitive damages, although this
is not made explicit.
Personal-injury
claims related to a construction defect will still allow for
recovery of both economic and non-economic damages, though
the latter are limited to $250,000, plus a cost-of-living
adjustment. This departs from the previous law, which allowed
for steeper awards for pain, suffering, emotional distress,
and similar non-economic damages. The law now better conforms
to other recent tort reform measures in this respect.
Colorado Consumer Protection Act (CCPA)
Under
the CCPA, the old Colorado law allowed all actual damages
(including non-economic) to be tripled, but HB1161 now limits
treble damages to $250,000, including attorney’s fees. Personal
injury damages are not awardable under the CCPA, and HB1161
clarifies this issue. And, providing further incentive for
builders to adhere to the notice and response provisions of
the bill, HB1161 holds that, if a builder who has complied
with such provisions offers in settlement 85% or more of the
damages that a claimant recovers (excluding legal fees), then
the treble damages under CCPA are not applicable. But the
CCPA trebling of damages would be available if a builder fails
to respond to a notice of defect or fails to complete its
work under a settlement agreement.
There
is much more to the bill than can be summarized in this brief
review. If interested in reading the bill in its entirety,
please click
here or contact us to discuss
how HB1161 might affect your company’s specific legal transactions.
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